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In the advent of the general elections in Great Britain which are scheduled to take place on May 7, 2015, corporate fears over radical policies to apply heavy taxes to bonuses earned by financial sector executives are beginning to surface.
Shadow Chancellor of the Exchequer Ed Balls, a government figure who was in office at the time when took his part in leading the British economy to fiscal crisis with a public sector that is too large and an economy that has been consuming beyond its productive capacity, has vowed that he will apply a windfall tax on bankers’ bonuses in the first year of the next parliament if Labour comes to power.
One particular London-based financial institution, Rothschild Investment Bank, is considering taking steps to pay its staff bonuses early in order to avoid the possibility of these being severely curtailed should the Labour Party win the election.
Rothschild would normally pay its staff their bonuses for 2014 in June this year, however, according to two sources who revealed information to the Daily Mail, Rothschild may pay the bonuses prior to the General Election.
These employees at Rothschild – called ‘code staff’ – shared bonuses of £12million between 50 of them between 2013 and 2014.
A final decision on the timing of bonuses is expected to be taken before the Rothschild group’s year end on March 31
The socialist Labour Party wishes to raise up to £2 billion by taxing the bonuses of bankers, which in a globalized financial market where transactions are executed electronically, is a disincentive for banking institutions to remain in London, as they could execute their trades from overseas and attract employees away from London should the tax be enough of a burden on employees for them to seek pastures new.
In March last year, Mr. Balls stated that his socialist party was planning to apply extremely high tax to bankers and prime property owners to raise funds for new job creation schemes and other pledges, a statement that did not bode well with those who remember the 1997 pledges from the same party which impoverished the nation and taxed small and large business so heavily that many outsourced their services overseas as it was no longer viable to operate in Britain.
Mr. Balls at the time stated that he believes that it is fair for the better-off to pay more to tackle unemployment and reduce a deficit expected to be running at £80bn at next year’s election, but his plans risk alienating business leaders and the City.
Mr Balls announced last year that a Labour government could introduce a second year of windfall taxes on bankers’ bonuses if the industry does not show more restraint. The party had already outlined plans to raise £1.5 billion to £2 billion from a tax on bonuses during its first year in office. This week, he has pledged that he intends to implement such a policy.
The money is intended to help to fund a jobs guarantee for young unemployed people and would be supplemented with a £900 million hit on the pension contributions of people earning more than £150,000 by restricting their tax relief to the basic rate.
Bearing this in mind, should Rothschild decide to pay the bonuses for 2014 to its staff in advance of the General Election, it is clear that the firm intends to safeguard the interests of its employees, however should the Labour Party win the election, and implement the tax, it could be a catalyst which may change the dynamic of London’s prestigious financial sector, especially considering that most of the London based banks and electronic trading firms have large operations in Hong Kong, Singapore and other major financial sectors, meaning that the transfer of senior employees within the company to other regions would be a very straight forward procedure indeed.